Options trading strategy for MA and RSI

As a result, the trader sees a picture showing the main trends in the market. Determining the direction of the current trend is simple and easy to see when you look at the chart.

Therefore, the main value of moving averages is the capability of recognizing moments of convergence and divergence of lines with different periods, which makes it possible to predict the beginnings and ends of trends with high accuracy.

The RSI was developed 40 years ago, and it is a tool designed to determine the beginnings and ends of trends, as well as their strength. It works on the principle of oscillators. It is based on SMMA, which differs from other types of MA in its mathematical formula for calculating the smoothing constant.

The scope of the indicator is very broad – it is used both by traders on short-term markets and on stock and currency exchanges.

We will use the RSI as a filter which will show the potential strength of the emerging trend. Therefore, we set a long period of 30. We also remove the overbought and oversold zones from the window, setting their levels to 0 and 100. Above is an example of the correct settings of the parameters for the RSI indicator.

Signal for options “Up”

We should open a trade on an increase when the rate of price growth begins to outpace the MA. This is manifested on the chart by the candles breaking through the line from below and exiting above it. The option is acquired immediately after the closing point (not the shadow) of the growing candle passes above the moving average.

The Relative Strength Index will help us distinguish a false breakdown from a growing trend. Due to its large period, it shows only real price trends that have sufficient potential. Entering the market is allowed only if the RSI line shows growth. And it should last for at least two candles, and the more the better.

Signal for options “Down”

The basic principle of trading on the strategy is described above, so we will not repeat it. The rules for buying an option “Down” are similar: a downward candlestick must break through the MA with a period of 8, while Trading rules for the strategy the RSI must show a downward trend for a minimum of the last two candles. An example is shown in the picture below.

The duration for transactions varies from two to five candles on the chart. When selecting expiration terms, you should take into account the time frame of the chart and the general volatility of the market. When trading on strongly pronounced trends, the duration of options should be reduced, and if the trend is weak, increased.

The CRYPTO IDX asset is optimally suited for short-term trading. We also add the necessary set of indicators with the required parameters. The signal is evident on the chart, so we buy the “Down” option for 60 seconds. The volume of our investment was $10, which is about 3% of our account, so we are not breaking the rules of money management.

The term expires and we get our profit. The volatility of the market is quite low – in fact it is practically flat, slightly resembling an uptrend. This is clearly seen from the Relative Strength Index – the line showed very slow growth. However, in order to successfully close the operation with a profit, one point is actually enough.

Read another article to learn more about volume based trading. “General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”